DEFINITION

Given the examples of contracts cited above, it may be appreciated that the simplest possible description of a contract is a ‘legally binding agreement’. It should be noted, however, that, although all contracts are the outcome of agreements, not all agreements are contracts; that is, not all agreements are legally enforceable. In order to be in a position to determine whether a particular agreement will be enforced by the courts, one must have an understanding of the rules and principles of contract law.

            The emphasis placed on agreement highlights the consensual nature of contracts. It is sometimes said that contract is based on consensus ad idem, that is, a meeting of minds. This is slightly misleading, however, for the reason that English contract law applies an objective test in determining whether or not a contract exists. It is not so much a matter of what the parties actually had in mind as what their behaviour would lead others to conclude as to their state of mind. Consequently, contracts may be found and enforced, even though the parties themselves might not have thought that they had entered into such a relationship.

FORMALITIES

There is no general requirement that contracts be made in writing. They can be created by word of mouth or by action, as well as in writing. Contracts made in any of these ways are known as parol or simple contracts, whereas those made by deed are referred to as speciality contracts. It is generally left to the parties to decide on the actual form that a contract is to take but, in certain circumstances, formalities are required, as follows:

• Contracts that must be made by deed

Essentially, this requirement applies to conveyances of land and leases of property extending over a period of more than three years. A conveyance is the legal process of the transfer of land. It is distinct from a contract to sell land, which is merely a legal agreement to transfer the land and not the actual process of transfer, which comes later. Agreements made by deed which would not otherwise be enforceable as contracts, because the required formation element of consideration is absent, will be implemented by the courts.

• Contracts that must be in writing

Among this group are: bills of exchange, cheques and promissory notes  consumer credit agreements, such as  hire purchase agreements  and contracts of marine insurance The Law of Property Act 1989 requires all contracts for the sale or disposition of land to be made in writing. It should also be appreciated that some such agreements, for example hire purchase, must be signed by both parties. Increasingly, agreements are conducted by electronic means and, until recently, this created a problem where the law required a contract to be signed. Now the Electronic Communications Act 2000, which resulted from an EC Directive deals with the issue; legal recognition is given to electronic signatures in that such signatures, accompanied by certification of authenticity, are now admissible as evidence in legal proceedings.

• Contracts that must be evidenced in writing

This last category covers contracts of guarantee, derived from s 4 of the Statute of Frauds Act 1677.